The Turnbull government has made a move to close a glaring loophole that has been allowing unpaid superannuation after a major report was published.

Minister for revenue and financial services Kelly O’Dwyer released a draft bill in July to fix a loophole in the Superannuation Act. This gap in legislation allow bosses to count employees’ voluntary salary sacrifice contributions towards the superannuation guarantee payments the employer is obligated to make.

This move follows O’Dwyer receiving advice on the issue from an inter-agency working group she set up in December 2016. The group included senior representatives from the department of employment and financial regulators, the Australian prudential regulation authority (APRA), the Australian securities and investment commission (ASIC), treasury and the Australian taxation office (ATO).

O’Dwyer established the group after Industry Super Australia (ISA) and Cbus Super produced a joint report, ‘Overdue: Time for Action On Unpaid Super’. The report estimated that roughly one third of employees are being short-changed on their entitlements under the guarantee and on average lose $1,489 of superannuation contributions each year.

Former federal treasury director Phil Gallagher, lead author of the report, is currently a special adviser to ISA. Gallagher welcomed the government's decision to take action on the legislation gap, but has urged further action.

In the report, Gallagher has recommended the government increase the frequency of superannuation guarantee payments to align with wage cycles, and make the Single Touch Payroll system mandatory for all employers.

Single Touch Payroll is a system that allows a real-time data exchange between employers and the ATO, with this system set to become mandatory for all businesses with 20 or more employees from 1 July 2018.

A spokesperson for O’Dwyer told Invest Magazine that the ATO has already follow one of the group’s key outcomes, which is to ‘increase its focus on Superannuation Guarantee compliance and to increase the number of ATO-initiated audit cases rather than rely on complaints to initiate audits’.

The spokesperson said that the other recommendations in the report would be ‘put to the Senate Economic References Committee Inquiry into Unpaid Super’.

The report found that unpaid super primarily affects low income earners, those working in hospitality, construction and cleaning industries and young employees.

Matt Linden, Industry Super Australia director of public affairs said high levels of unpaid super have been around for a long time, and if it continues to rise without prompt action from the government, the industry and those who rely on it won’t be able to plan for a proper retirement.

Linden said the data compiled in the report should be viewed as a wake-up call and could be an indicator for higher-risk businesses.